Canada, U.S. OK Limits for Wheat Imports : Commerce: The 'understanding' averts a trade war and curbs imports to 1.45 million metric tons for one year.

WASHINGTON — The United States and Canada--the world's biggest trading partners--averted a trade war Monday by agreeing to limit imports of Canadian wheat into America for one year.

The "preliminary understanding" was reached at the last minute as Washington was set to begin considering sanctions against Ottawa. Both governments must formally confirm the pact today.

The agreement would limit the overall imports of Canadian wheat to 1.45 million metric tons--down sharply from the record 2.5 million tons shipped to U.S. buyers during the 1993-94 marketing year--before steep tariffs are imposed, the North Dakota Wheat Commission said.

The Clinton Administration refused to divulge trigger levels in the package. It said it wanted to give the Canadian Cabinet a chance to review the package. But sources close to the dispute confirmed the numbers.

"This will result in a substantial reduction in wheat imports compared to last year," a statement from U.S. Trade Representative Mickey Kantor's office said.

The dispute arose as Canadian wheat imports soared into the United States over the past year as a result of a meager U.S. crop and what the United States charged were unfair Canadian wheat subsidies.

The quarrel had been simmering for months and threatened to explode into an all-out tit-for-tat trade war and disrupt the huge $210 billion worth of trade flow between the two neighbors.

Washington had set the Monday deadline for an agreement, and U.S. negotiators were set to recommend to the White House whether to take action against Canadian wheat imports.

Canada had threatened to retaliate if any sanctions were imposed, hitting everything from wine to chicken to bourbon and baked goods.

But in a key part of the pact, both countries agreed to a "peace clause" for the next 12 months and promised there would be no additional restrictions or countermeasures by either side.

Both sides also agreed to set up a Joint Commission on Grains to examine all aspects of each countries' marketing and support systems during that time. Kantor said Washington is particularly concerned by the Canadian Wheat Board's pricing practices and Canadian subsidy programs.

"We believe this is a satisfactory arrangement for all concerned," said Kantor.

While farm producer groups and wheat-state lawmakers were positive about the agreement, other sectors of the food industry were not happy.

Of the Canadian wheat that has been surging into the country, more than 800,000 tons has been durum wheat--the kind of wheat used to make pasta. As recently as the late 1980s, the United States purchased virtually no Canadian durum.

The pasta industry and wheat millers have urged the Administration not to take action against Canadian wheat, warning that it could raise food prices and damage the $2 billion U.S. pasta industry.

"We are disappointed, incensed, angry. We don't like it at all," said Jula Kinnaird, president of the National Pasta Assn.

"Any restrictions at all are a bad deal for the industry. It will mean job losses and higher prices to the consumer," said Kinnaird.

Kinnaird said the association will now demand that the United States stop providing export subsidies for durum wheat while the import restrictions are in place.

Under the agreement, duties on durum imports above 300,000 tons would be $24 per metric ton on imports up to 450,000 tons. They would jump to $50 per ton on imports that exceed 450,000 tons.

A $50 per ton duty equals $1.36 per bushel, which translates into more than a 30% tax on durum, which on Monday was selling for $4 per bushel in northern Minnesota.

When asked if this was a victory for the United States, Kantor said, "There are only winners in trade, there are no losers."